Image Source/Getty Images Uber and Netflix have fundamentally shifted consumer behavior and disrupted incumbent firms. In our research, we’re beginning to see signs that Wall Street is being threatened by similar forces. Uber and Netflix’s success were generated through two critical strategies. First, they created a combination of breakthrough product innova […]

Youngme Moon and Felix Oberholzer-Gee decide to “grade” The New York Times’ news coverage, before sharing their quick takes on other random things. They also share their After Hours picks for the week. Download this podcast For interested listeners: AG Sulzberger Interview with Kara Swisher (Recode Decode Podcast) You can email your comments and ideas for fu […]

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by Lloyd Melnick

Facebook’s importance, or lack thereof, for social gaming

I have been reluctant to join the bandwagon of people declaring Facebook dead, either overall or as a social gaming platform, but I have gotten to the point where I have lost confidence in Facebook. It has been fashionable since Facebook’s IPO to say the platform was in trouble because of the shift to mobile. In the game space, the anti-Facebook crowd got started even earlier, suggesting the only wise course for social game companies was to develop for mobile platforms instead of Facebook. I was reluctant to join this chorus, given the incredible user numbers Facebook has and the revenue that some games were still generating on Facebook (which dwarfed comparable mobile games). However, I have been rethinking my position.

The younger demographic does not like Facebook

Although I love to rely on numbers, a recent experience pushed me out of the Facebook camp. I was at a marketing meeting for a sports league. They had hired six recent college graduates (all in their early 20s) for a bus tour to generate interest among a younger demographic. During the two days of meetings, we often discussed their lifestyle and how social media fit into it (so they can leverage it for the bus tour). The six did not mention Facebook; they always brought up other platforms or other communications mechanism. The few times Facebook was brought up, all of them said they use it at most a few minutes a day and their friends did not actively use it. They also said they avoid games on Facebook (because of the posts on their walls and those of their friends) and were very condescending to Facebook games (not the gameplay, though). It also seemed that they had major privacy concerns and hated the complexity of altering your settings.

I found the conversations particularly compelling because the six recent graduates did not have any anti-Facebook agenda; it would not have touched their workload and did not improve their status. It was also not a Facebook focus group, so people were talking naturally and there was no observation bias. I realize it was only six people (and their friends) but the consistency of their comments and how the conversation fit with concerns others have voiced about Facebook was very compelling.

Mobile does not need Facebook

Mobile operating systems have minimized the need to spend significant time on Facebook. In the PC web world, there is little structure. People could spend hours searching for something that entertains them. With Smartphones, all your favorite applications are in front of you; just touch what you want to do. Facebook’s role as a filter and discovery tool is much less important. You might still use it check your friends’ status updates, but its role is much more limited. There is less of a need to play a game through Facebook rather than just touch the icon (if the social elements added more value to the player of a social game, it would counteract this phenomenon, but most social games are not that social).

The platform always shifts

The other reason why Facebook is less important as a gaming platform is the constantly shifting structure and terms of service. A lot has been written about the loss of virality from the early days of Facebook gaming and the implementation of Facebook credits, but the most difficult issue for developers is that the rules change so often. Most good development studios can adjust to any change. The reason Facebook gaming (and the developers behind it) have been hit so hard is that the continuous changes force developers to be constantly changing their games (either already launched or in development). Given that games must be designed from an early stage to optimize monetization, virality and retention, they cannot quickly adjust to changes of policy. A small change can upset the balance of a game and drive down these key metrics. Although the developer can quickly get the game in compliance, the rule changes dampen the game’s LTV as well as fun factor to the end user.

Facebook is still a force

Despite the trends working against Facebook, it is still very relevant. Facebook still has over 1 billion monthly active users including over 600 million accessing it from mobile devices. Despite the issues raised above, there are also companies making good money from Facebook (Zynga makes about $1 billion a year on the platform). The trends, however, suggest that there are better options for game companies and this movement will accelerate.

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Lloyd Melnick

I am Director of Social Gaming at PokerStars, where I lead the team responsible for free-to-play gaming. We currently have more than 20 free-to-play applications with over 450,000 daily unique players, growing every day. Previously, I was Sr Dir at Zynga's social casino (including Hit It Rich! slots and Zynga Poker). I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) worth over $700 million the past 4 years.